Particular Approach, Research Focus and Methodology

OECD (1998a) assumes $1.000 Million in total revenues by 2003–2005. See Margherio et. al (1997) Al 24-43 for a detailed quantitative macro economic analysis. The market for multimedia products and services is characterized through the convergence of formerly distinct areas, increasingly globally operating industries and firms. It represents 10% of the US GDP and will generate revenues of $1.47 Billion in the US by the year 2005 (see Tapscott 1996, p. 9). Current assumptions for 1998 presume over 1. Mio. open positions (Margherio et. al. 1998, OECD 1998a). E. g. new Internet based procurement and distribution changes classical ways of handling these processes and the related jobs significantly (OECD 1998a, Andersen 1998).Google Scholar

The particular aspects regarding issues of intranets or extranets will not be focused upon. These areas of research focus either on how companies organize their business to business (B2B) processes (Extranets) or how companies organize their internal business processes (intranet), both based on Internet technology. This discussion would lead into an analysis of the virtualization and disintermediation of business in general. This thesis will refer to the existing complementary analysis in this field. Although this does not mean that this thesis has a focus solely on end customer business. Particular business-to-business aspects, which are part of the value system for on-line services, e. g. dial-up network wholesale, server software, client software etc., and their strategic aspects will be analyzed.Google Scholar

Winter (1998) outlines this cohesion of standpoint and object definition, the shape, from a organizational and management perspective in a very differentiated way.Google Scholar

It is a fundamental aspect that the underlying context and the particular hypothesizes of a standpoint are crucial to determining perception. Dependent on existing information and accepted hypothesizes, the perception of an object will be adjusted accordingly. See Graumann (1956) for the cognitive aspects of individual perception and the shaping influence of the underlying hypotheses.Google Scholar

This framework of definitions is a fundamental source of differentiation of this thesis from the existing scientific work. This is a vital aspect as the number of research projects in the on-line and multimedia area are growing steadily.Google Scholar

The terminology around the term “on-line” will be elaborated in 2.3 — 2.5.Google Scholar

See 2.1.2 for a deeper explanation of this term.Google Scholar

Multimedia combines static and dynamic media and enables interactive applications whereas interactivity and cross media integration are the distinct particularities. See Booz Allen Hamilton (1995), pp. 24-25.Google Scholar

In general “Electronic commerce is the ability to perform transaction involving goods or services between two or more parties using electronic tools and techniques.” (Schutzer 1997:521).Google Scholar

The term “e-conomy” was introduced by the University of California at Berkeley which is running a comprehensive interdisciplinary research project (http://e-conomy.berkeley.edu) covering this new economic and social environment. The author took part in the kick-off team for this project as a visiting scholar contributing to the aspects of business strategy and comparative issues of the US — European business practice to the research agenda.Google Scholar

OECD (1998a) predictions assume approximately 1% of the global economy is being generated in the digital e-conomy. This number appears relatively low but distinguishes between real data and hyperbole. Nevertheless, one should take into account that this sector is highly innovative and fuels a multiplier into other future sectors of the economies.Google Scholar

This refers to Porter’s (1985) model of the value chain. This concept assumes that each company has internal activities which add value to the product or service. Porter structures them in a chain of primary activities like production or R & D and secondary overhead activities which support the primary activities. At the boundaries of the firm’s value chain it connects with the supply chainand the distribution chain, which establishes a value chain system. The vertical dimension of this value chain system describes the sequential steps of the value adding process. The horizontal dimension describes activities at the same level of value, adding activities. The configuration of this value chain is a source to generate competitive advantage. Porter’s framework will be further introduced and discussed in 2.2.2 and 3.2.1 as a fundamental analytical component.Google Scholar

See Evans / Wurster (1997), Rayport / Sviokla (1996), Rayport / Sviokla (1997), Zerdick (1999, eds.) for a new trend in the traditional discussion about the virtualization of firms (see footnote 26) by focusing the Internet as a ubiquitous and shared platform for transactions.Google Scholar

See Williamson (1975, 1986, 1999, eds.) for the underlying economic models, Coase (1937) as the theoretical foundation and Picot / Reichwald / Wigand (1996) for an management application with strong IT references.Google Scholar

The term “e-business” was coined as an overall umbrella label for IBM’s new strategy to supply a complete suite of products to support business processes with products and services based on Internet technology. Due to IBM’s massive marketing effort, this term experienced very rapid diffusion. It can be used to refer to business processes in the digital economy according to interview with Stuart Feldman, Director of the IBM Advanced Research Lab, 4^th of March 1999, Berkeley.Google Scholar

See Selz/Klein (1997).Google Scholar

In the presence of an exploding amount of literature discussing the issues on e-commerce, the author recommends a host of publications, which appear fundamental rather than hyperbolic and which were in part responsible for spawing a widespread theoretical discussion such as Hagel / Armstrong (1995, 1996, 1997a, 1997b), Hagel / Bergsma / Dheer (1996), Hagel / Rayport (1997a, 1997b), Hagel / Sacconaghi (1996), Hagel / Singer (1999), Sacconaghi / Abela 1997), Harrington / Reed (1996), Harrington et. al. (1998). In general, the author would commend the activities of the following major players who are claim to be the “pioneers” of ecommerce with a positioning as a gateway (e.g. AOL, @Home), a web portal (e.g. Yahoo!, Excite), an e-tailer (e.g. Amazon, etoys), an auctioneer (e.g. eBay, Onsale), a buying network (e.g. Priceline, Mercata) or a direct to customer business (e.g. Dell.com). Goldman Sachs (1999a) provides an excellent overview and structural analysis of these different approaches. Each of these categories differ significantly in their positioning and it yet remains to be proven which position will be the best over the long run. The theoretical discussion in this footnote provides some indications.Google Scholar

See Kalakota / Winston (1996), pp. 219-222 for a distinction of three types of electronic businesses and references to the Internet, Extranet and Intranet as the according on-line platforms.Google Scholar

This on-line environment can be seen as an evolutionary progress from proprietary EDI systems, which were related to general research on the virtualization of value chains. Schutzer (1997, pp. 521-523) points out that EDI technology is gradually being replaced by the shift towards Internet technology. In the context of the Internet, new, open standard technology is incrementally superceding these EDI systems with the accompanying technological life cycles and related research is focusing on Internet technology. This logic underlies the research activities of the UC Berkeley e-conomy project and the research of the Stanford Computer Industry Project at Stanford University.Google Scholar

The adoption rate of this technology in the large industrial sectors in 1998 shows an expected growth from 35% to 70% by the year 2000, which underpins the importance of this environment (see Deloitte 1998, p. 5).Google Scholar

The adoption rate of 20% in 1998 is expected to grow to 42% in 2000 (see ibid., p.5).Google Scholar

The adoption rate of 15% in 1998 is expected to grow to 70% in 2000 (see ibid., p. 4).Google Scholar

See e.g. Bar / Borrus / Steinberg (1995) and Donahue (1997).Google Scholar

Rayport / Sviokla (1994) created this term of “marketspace” which describes the new form of virtual marketplaces, which are located in the cyberspace of the Internet. Section 2.3 will show that past on-line services were the predecessor of these new Internet-based marketspaces and suggests deriving experience curve effects from that proprietary online service tradition. The use of the term marketspaces is in its plural, as these past services were isolated, closed systems without significant capabilities to interconnect the users of each platform.Google Scholar

Porter (1985).Google Scholar

This discussion was become more and more popular since the new institutional economics were developed, based on Coase’s (1937) ideas, and expounded by Oliver Williamson (1990, eds.) and others. Since the Internet is becoming such an overwhelming economic phenomenon, this research was recently revitalized and enhanced with an increasing analysis of new Internet-related forms of value creation in the virtual marketspace. This new research on the virtualization of enterprises is becoming extremely web centric. See Evans / Wurster (1997), Rayport / Sviokla (1996) and Hagel / Rayport (1997b).Google Scholar

See Selz / Klein (1997/1998) and Selz (2000).Google Scholar

See Picot / Reichwald (1994) regarding the virtualization of the firms boundaries due to ICT, Picot / Reichwald / Wigand (1996) for a general organizational approach with extensive notions of the technology aspects.Google Scholar

See furthermore on on-line banking Johnson et. al. (1995), Hagel / Hewlin / Hutchings (1997).Google Scholar

The majority of the current research projects are approaching the on-line industry from this horizontal perspective where existing and established industries, especially from the media or telecommunications sector view the on-line industry. Usually they research the new aspects for the existing business from a known and familiar position, which is gaining in relevancy through on-line and multimedia development. From this standpoint, the on-line business is typically considered a new phenomenon in the environment of existing businesses. Traditional knowledge, like market structure, market mechanisms, and value adding structures are applied and singular enhancements are made from a particular industrial view.Google Scholar

See Ansoff (1965).Google Scholar

This statement refers to the underlying logic of the value chain and not to the potential virtualization of its structure. The later aspect is related to the lateral perspective and is of course also valid for the converging industries, which may increase the degree of virtual value creation within their business system.Google Scholar

See for example Squire, Sanders & Dempsey (1998a), pp. 84-93, Squire, Sanders & Dempsey (1998b), p. 210-227, KPMG (1996a), pp. 83-14land European Commission (1997a), pp. 1-2.Google Scholar

See ibid.Google Scholar

Including Japanese licensee NiftyServe, which is based on CompuServe technology.Google Scholar

Minitel has one difference to the other services as the service bundling includes the access device as well. Minitel offered its application via Internet technology since 1988 whereas this usage did not really grow until 1990 (see OECD 1998, pp. 26-27). Minitel plans to introduce a service based on Internet technology with IBM as network supplier and Alcatel as the device supplier in 1999 (see Andrews 1998 and interview with Benoit Raimbault, Marketing Manager Alcatel Screenphone, 24^th of July 1999, Paris.Google Scholar

Sources: OECD 1998, BCG (1995b) and internal company data.Google Scholar

This is a plausible development, since in the past business on-line services were able to generate revenues per subscriber 15 times as high as consumer online services (see BCG 1995b).Google Scholar

See BCG 1995b. In 1996, US on-line services alone still outnumbered the 10 million Internet users with its combined user base of 12 million subscribers according to Morgan Stanley (1995).Google Scholar

It seems plausible to set this date, as by this time all on-line service providers started to offer Internet access and the adoption rates of internet service providers started to grow dramatically, while the Internet was just privatized. See also BCG (1995b).Google Scholar

See MacKie-Mason (1995) and Varian / Shapiro (1998) p. 13.Google Scholar

Ibid. p. 89.Google Scholar

See also Messerschmitt (1996) for a computing and telecommunications perspective and Dowling / Lechner Thielmann (1998a) for a media perspective. Dowling / Lechner / Thielmann additionally differentiate the technological dimension, the needs dimension, the industrial dimension, and the firm dimension of convergence (ibid., pp. 3-4).Google Scholar

The term multimedia has a large overlap with the term ICT, although multimedia rather the describes the convergence of telecommunication and audiovisual applications.Google Scholar

Microsoft (1998). See Rogers (1995) for the underlying aspect of diffusion of innovations in a social system.Google Scholar

See also Figure 1-5 which shows that the adoption rates stagnated over 20 years but have rapidly increased since 1995.Google Scholar

This example describes the overall business system behind Alcatel’s Internet Screen Phone, which was awarded “Product of the Year” at CeBIT 1997. The background is based on interviews with Benoit Raim-bault, Marketing Manager Alcatel Screenphone, 24^th of July 1997, Paris and Rony Vogel, Marketing Manager Siemens Online Terminal, 27^th of July 1997, Munich. The strategic partner of Siemens for telecommunication was CompuServe. Additional background information can be found at Andersen (1998d).Google Scholar

This figure is an applied version of the evolutionary relation of business practice and theory in complex environments (Kirsch 1992). It is presented at this point of the thesis to illustrate how the applied scientific program of the research project has utilized synergies between the practical and theoretical spheres in this complex environment.Google Scholar

This also reflects the approach of the scientists who were part of the cooperative research network during the course of the underlying research project. The research area is considered to have a high degree of novelty and current research tries to approach the business practice in a descriptive way in order to develop models with higher levels of abstraction.Google Scholar

At this point in time, the majority of research concentrates on the third layer. The reason is that the scientific community has adopted the topic only recently, with a much stronger emphasis in the United States. So far, primarily the consulting companies and investment banks are generating abstract knowledge about the online business in a significant way. The particular approach of consultants especially on value chains, technology life cycles, adoption rates, various matrixes and so forth have focused on layers two and three. The projects are usually run under the headline of multimedia or e-commerce. Opposed to this, investment banks have developed a more convincing understanding of the fundamentals of this industry and usually combine these insights with powerful value driven considerations. Most of the European research and consulting projects funded by companies in the converging industries: telecommunication, media, computer and consumer electronic or by political institutions (e. g. the US Department of Commerce, the European Commission DG III, DG XIII, DG XV, BMWi, UK ministry for trade and industry). Due to the particular background of these industries, the perceptions are heavily influenced by the convergence industries. This thesis will prove that the on-line business needs to be analyzed in an authentic way and the horizontal views of the converging industries systematically reduces this perspective. This is the main reason why consulting projects overlooked some major aspects so far. The majority of the US consulting projects approach the on-line business form a lateral perspective such as banking or automotive. They usually analyze this environment with regards to e-commerce or virtual value creation aspects. Considering these sources, extensive internal documentation from different companies was used as background information for this thesis.Google Scholar

This refers not only to the available value of topical data but even more to the quality of forecasts covering future developments. Most of the quantitative statements of market researchers, analysts and consultants usually have the quality of roughly plausible assumptions based on scenario techniques. It is especially insufficient that the quantitative data about mission critical and strategically crucial factors (see 3.1.4) is unreliable. It is still a common phenomenon that one is exposed to almost a “menu of choices” of a singular business planning factor. It is obvious that the on-line business, although being based on data processing, cannot be analyzed and managed as is a mature business environment. As a consequence, quantitative data was applied in singular aspects but not in the fundamental part of this thesis.Google Scholar

The author took part in the research team of the University of California “e-conomy” project as a visiting scholar of the Berkeley Round Table on the International Economy (BRIE) at UC Berkeley from February 1999 through May 1999. Furthermore ongoing joint research efforts were undertaken with the Media and Communications Management Institute (MCM), University of St. Gallen from August 1998 through September 1999, and the University of Regensburg from March 1998 through September 1999. Furthermore the author worked together with researchers from the London School of Economics, Stanford University and the University of Piacenza.Google Scholar

6^th / 7^th of July 1998, 11^th / 12^th of February 1999 and 26^th / 27^th August 1999 in St. Gallen, 4^th / 5^th of November 1998 in Munich, 4^th / 5^th of May 1999 Los Angeles.Google Scholar

Graduate students of the Institute of International Management of the University of the German Armed Forces and CompuServe — the sponsor of this project — conducted a research program analyzing product and pricing issues of a content based on-line service offering.Google Scholar

See Communic (1997a, 1997b), BCLT (1999), Baack / Eberspächer (1999, eds.), Cioffi / Berg (1999), and a host of publications from financial analysts.Google Scholar

As the consulting companies expect that the entire Internet framework will be a huge source of future consulting projects they are starting to analyze the field and publish the findings to convince future customers of the necessity to react and to prove their expertise.Google Scholar

Comprehensive information and documentation of consulting projects in the multimedia and telecommunications sector from the following consulting companies was accessible: McKinsey, AT Kearney, KPMG, Booz Allen & Hamilton, Deloitte Consulting, Coopers & Lybrand, Squire Sanders & Dempsey, and Andersen Consulting.Google Scholar

As Eisenhardt (1989, pp. 538-539) points out, data collection and processing are not discrete and sequential tasks in the course of case studies. They occur ongoing during the process of research. This describes the character and proceeding of the underlying research activities of this thesis as continuous access to data of the field which was used for the practical examples and cases was provided.Google Scholar